Bond Expert: Friday Outlook

Prices of Treasury coupon securities are surrendering some of the historic advances achieved yesterday as stock markets around the world bounce from the 11 year lows they reached yesterday.

I guess the pertinent question is to discern if the market today is doing an imitation of a moribund feline striking the pavement after dropping from on high, or is this something sustainable. The jury is out on that question for awhile because after that straight line plummet of the last several days, a bounce is normal and natural. As an aside, I had mentioned here several times that I was short equities. I covered my short yesterday (early and missed the big move late) and actually dipped my toe into the water late in the day. So I actually have a very modest long position. I sold 20 percent of the 10 year which I hold and I am leaning towards launching the remainder today.

The yield on the 2 year note has climbed 9 basis points to 1.07 percent. The yield on the 3 year note has climbed 11 basis points to 1.28 percent. The yield on the 5 year note climbed 12 basis points to 2.02 percent. The yield on the 10 year note climbed 12 basis points to 3.13 percent. The yield on the Long Bond has risen 10 basis points to 3.58 percent.

The 2 year/10 year spread has steepened to 206 basis points.

Overseas equity markets have all manifested the same bounce that the US market is exhibiting. Economic data that I have seen remains weak as one would expect.

Toyota is slashing its temporary workforce by 3000 jobs as global demand for its cars contracts.

The Japanese government issued a downbeat assessment of their domestic economy.

In the UK, the Council of Mortgage Lenders noted that foreclosures jumped 12 percent in Q3.

And a survey of European manufacturing and service industries showed the fasted rate of decline since record keeping began in 1998.

There is no meaningful data in the US today but a couple of Federal Reserve grand poobahs do pontificate.

The Wall Street Journal reports that Citibank (C) is considering various strategies to resuscitate itself, including selling itself. Tape bombs associated with that story will move the market.

I failed to note yesterday that the Treasury did announce $36 billion 2 year notes and $26 billion 5 year notes which will be for sale on Monday and Tuesday. Get those bonds before you sit down for the turkey dinner!!

Comments

[whidbey:]

Yes, like the cat the US Treasury comes around twice a week offing its spawn and the Chinese say they still like it.

But what seems to be making us all nervous is the ease with which CitiGroup is apparently being talked into suicide by various unknown traders. It is unnerving to those of us who hold GI and hate having to give them up get some piece of mind. Is cash becoming dangerous?

2008 Nov 21 01:29 PM

[kurt walter:]

Idea: The Fed should offer $700 billion in 30-year T-Bonds now at 3.58%. Forget the bailout. Use that new bond money. Then, when bond yields go up, oh they will sometime in the next 30 years, buy back the bonds at under par from the fools that took that 30-year 3.58% rate.

2008 Nov 22 01:34 PM